Bank of America strategist Michael Hartnett notes that the Trump administration is increasingly employing government intervention measures to manage the economy, a transformation described as shifting from "invisible hand to visible fist."
Hartnett states that while price controls for 2025 have not been explicitly announced, the government is implementing subtle measures to control prices in key sectors and increase supply, potentially to prevent a second wave of unwelcome inflation ahead of midterm elections.
This strategy has already been implemented across multiple industries. In the energy sector, the government has pursued deregulation policies and promoted the Ukraine peace process, yet energy stocks have declined 3% since the election. In healthcare, executive orders have reduced U.S. drug prices to "most favored nation" levels, with the sector falling 8% since the election. In housing, a "national housing emergency" has been declared, with affordability improvements through increased supply, causing homebuilders (XHB) to drop 2% since the election.
Hartnett notes that markets are responding to these political moves by shorting "inflation-suppressing" sectors while going long on sectors capable of "beating China" and creating leverage for favorable trade deals in 2026.
Hartnett identifies the Big Tech Seven, semiconductors, and aerospace & defense as "national security winner" industries benefiting from this dynamic. Utilities are identified as the next most vulnerable sector, as Trump has pledged to cut electricity prices by half within 12 months, while the Energy Secretary has expressed concerns about AI demand driving electricity price surges.
Hartnett suggests these selections may continue to benefit as long as President Trump's approval ratings remain above 45%. However, he warns that if approval ratings fall below 40%, this approach could "end badly."
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